Bid to clean up shell firms is hit by trade in fake owners

The move, which was widely welcomed, came after it emerged that SLPs had been used to carry out some of the world’s biggest and most elaborate schemes to clean dirty money, including the £2.2 billion Azerbaijani Laundromat. There is growing concern those close to the authoritarian regime of Azerbaijani President Ilham Aliyev used the Laundromat as a slush fund to pay off western politicians.

All SLPs had until last August to declare a “person of significant control” or PSC, or pay penalties of £500 a day. Thousands, including some created and hosted at Scottish law firms, have failed to do so.

However, a Herald investigation suggests overseas-based internet agencies are selling off-the-shelf PSCs for SLPs, for less than half the cost of a daily fine.

One firm, which we have decided not to name, said it could provide a nominee- controlled British limited company as a PSC, making the true owners of any SLP untraceable, for just 170 euros for anyone buying an SLP.

The UK Government has signalled that it will announce new reforms of partnerships soon to make their abuse harder.

Experts fear the PSC regime – seen by some Scottish law firms manufacturing SLPs as a fix – is being undermined less than a year after it was introduced.

Steve Goodrich of anti-corruption campaign, Transparency International, urged vigilance from Britain’s corporate register, Companies House.

Mr Goodrich said: “It is important that good initiatives such as the PSC register are closely monitored and any attempts to get around it are found out and shut down.”

“We must be under no illusion that criminals will seek to provide false information and retain their anonymity to continue using UK firms to launder their dirty money.

“Companies House must be vigilant against schemes like this, investigating – and where necessary – striking off companies which do not conform to the UK’s regulations.”

The agency offering fake PSCs is in the former Soviet Union and its adverts are in Russian.

The Herald asked the agency on what basis it was supplying nominee-controlled limited companies as PSC. It said its information was “outdated and inaccurate” and thanked The Herald for highlighting the issues.

A whole host of agencies in the former Soviet Union retail off-the-shelf SLPs – and similar English and Scottish limited liability partnerships. Often such firms, which become opaque because their partners are shell firms in more traditional tax havens, are sold with ready-made accounts in Latvian or other non-resident banks.

Mr Goodrich added: “Overseas company formation agents present a major money laundering risk to the UK.

“They are able to offer criminals the use of British firms whilst themselves being outside the jurisdiction of UK regulators. This means we are reliant on enforcement actions of other jurisdictions to ensure company service providers are not supplying clients with false information which would undermine the UK’s transparency commitments.”

READ MORE: Scots law giant Burness Paull link to hundreds of secretive shell firms

The Herald has identified a series of UK corporate entities which have been used as a PSC for multiple SLPs. These “owners” include limited companies but also other SLPs, including Daystone Overseas and Cleveland Organization. These firms, while acting as a PSC, themselves have declared they have no PSC. This makes tracing the ownership of the SLPs they control impossible.

According to UK law, SLPs must declare any person or firm which owns or controls a stake of more than 25 per cent. Daystone and Cleveland each have five general partners which, in theory, account for 20 per cent each of the business.

A spokesman for Companies House made it clear that a nominee-controlled corporate entity was not an acceptable PSC.

He said: “If a nominee is acting for a legal entity with control over an SLP, the SLP must follow the steps for registration of a registrable relevant legal entity.

“These steps involve identifying whether the legal entity meets any of the conditions of control, is subject to its own disclosure requirements and is the first legal entity in an SLP’s ownership chain. Failure to comply with the requirements of the PSC regime may result in an SLP and its partners facing a fine or imprisonment or both.”

(Scotland, re-imagined as a tropical tax haven island)

A UK Government spokesman said: “Providing false information to the UK’s public company register is illegal. When irregularities are identified they’re passed on to relevant authorities and can lead to prosecutions.

“We will shortly announce reforms to prevent limited partnerships from being used for unlawful activities to address concerns that a small minority of SLPs are being abused.”

BACKGROUND Reforms have slowed but not stopped limited partnerships industry

THE effect was instant – but not lasting. Back in the summer of last year the UK Government said it would force every one of Scotland’s thousands of limited partnerships to name their true owners.

The structures – normally known by their abbreviation of SLP – had already been dubbed Britain’s home-grown secrecy vehicle by Transparency International.

Scottish law firms had been churning them out as vehicles for tax-efficient investments, both for equity funds and for Caribbean-based wealth management schemes.

But most SLPs were entirely opaque – and had little or nothing to do with legitimate solicitors. Many, indeed, were involved in some of the planet’s worst criminality.

They were popular precisely because they came with the kind of anonymity once offered by a numbered Swiss bank account. Then British ministers, who are responsible for Scots corporate law, said they wanted SLPs to name their “persons or significant control” or PSCs.

There were 116 SLPs registered in the June week when that announcement was made. There were just seven in the week when it began to come in to force, beginning on July 24. In the same week a year earlier, there had been 131 registrations. In the whole of August just 60 SLPs filed at Companies House. Then, slowly but surely, numbers started to recover.

There were 634 SLPs registered in the first six months of the PSC regime – 127 have given an address at a UK law firm, and 18 more appear to be one-off registrations by Scottish residents. This is the “legitimate” SLP business.

However, such firms were still outnumbered, more than three to one, by 489 new SLPs based at maildrops across Scotland

READ MORE: BBC uncovers new abuse of UK shell firms

Tracing the real owners of such SLPs remains nearly impossible. That is because the named PSCs are either barely-identifiable individuals from the former Soviet Union or opaque corporate entities.

Some of those corporate entities acting as PSCs either have no PSC themselves or are not allowed to act as a PSC.

Nobody had ever thought this PSC regime would be a magic bullet to stop the abuse of SLPs. It has slowed down new registrations, especially in the late summer of last year.

But anyone who wants to avoid PSC transparency has probably worked out how to do so. There remain thousands of opaque SLPs created before last summer which remain non-compliant with the PSC system. Now it’s up to policy-makers to work out how to avoid a new boom of SLP abuse.